The Economic Transformation of Eastern Europe: Views from Within

push. Because the population expects substantial structural unemployment, one may anticipate a cautious approach to consumption.

A part of monetary policy will also be exchange rate management. The
establishment of limited convertibility of the koruna (liberalization of
buying and selling foreign exchange for current account transactions and
a unified exchange rate) should provide the main information for export
and import activities. The government intention is to intervene on the
market to limit fluctuations outside of the specified range of a real
exchange rate (especially in the case of rapid depreciation of koruna) to
avoid sending confusing signals to producers as well as to reduce additional inflationary pressures. These measures require, of course, substantial reserves and stand-by credit, in the short run, and the rapid
improvement of the foreign trade performance in the medium term, which
would help to ensure an adequate supply of foreign exchange in the
interbank market.

CONCLUSION

The purpose of this chapter was to show the current state of affairs in Czechoslovakia, the background of recent developments, and the macroeconomic design of future changes. Czechoslovakia wants to realize the
transition from a centrally planned economy to a market economy and, in
this respect, the reform intentions and instruments are quite clear and
"standard." Leading reformers do not want to repeat the mistakes from
previous reform attempts by introducing some hybrid system between
central planning and a market economy.

This chapter showed both internal and external preconditions of the
successful transition and some reform traps and weak spots at the macroeconomic and institutional levels that might be hidden from outsiders.
Special attention was paid to monetary and fiscal policy and institutional
changes. In the last section, the main measures that are expected to be
implemented in those areas in the short and medium term were discussed.

NOTES

I thank Saul Estrin, Paul A. Greeman, Jiri Jones, Martin Mandel, Michal
Mejstrik, and Zdenek Tuma for their comments on earlier drafts of the chapter.
They provided me with many interesting details and ideas during the writing
process. The responsibility for all mistakes and inaccuracies is, of course,
exclusively mine.

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